Calgary Real Estate: 2023 Recap and 2024 Forecast
Calgary Real Estate and Rental Market Update
January 1, 2024 - Written by Jamie Palmer, President/Broker of Power Properties
2023 saw Calgary real estate shine, and 2024 looks like it will be very similar. I’m going to take you through the 2023 numbers and what you can expect in 2024.
The 2023 Real Estate Market in Review
Detached homes in Calgary saw a 12% increase in price year over year. What does this mean to you as a real estate investor? If you used a 25% down payment, assuming break-even cash flow, then your return on investment was a staggering 48%! Let’s look at a detailed example so you can see the power of investing in real estate:
Purchase Price: $587,500 (actual purchase price of a 3bd/2.5bt, 1906 sq-ft house in New Brighton, in January 2023)
Down Payment (25%): $146,875
Increase in value from January 1st, 2023 to December 2023*: 12% = 12% x 587,500 = $70,500
Return on investment = increase in value / down payment = $70,500/$146,875 = 48%
Can you expect similar returns in 2024?
Well, let’s look at some more numbers:
Calgary was once again ranked 7th best city in the world by The Economist, making it one of the top destinations in Canada for new immigrants.
Calgary’s cost of housing is significantly lower than Toronto's or Vancouver’s where average detached house prices are $1.4M and $2.2M respectively.
Alberta saw the highest number of inter-provincial migrants in Canada in 2023.
According to CMHC, Alberta will be short 130,000 to 170,000 homes by 2030 (demand will continue to outstrip supply).
All of these numbers suggest that Calgary will continue to see upward pressure on home prices and rents for the next several years.
Navigating the Rent-Ownership Cost Gap
The biggest challenge real estate investors face in Calgary right now is the gap between rents and ownership costs. This means you either have to make a larger down payment or accept a negative initial cash flow. What does that look like using the numbers above:
Using the 25% down example above, the monthly costs (mortgage payment, property taxes, insurance) of the property would be:
Mortgage (5.74%, 25-year amortization): $2751
Taxes: $274
Insurance: $200
Total: $3226
The expected rent for the house would be $2700/month so you would be negative $526/month, which is $6312/year. Now take that off the return on investment ($70,500 - $6312 = $64,188), this still leaves you with a return of $64,188/$146,875 = 44%!
Alternatively, you could use a 39% down payment ($229,125) and have breakeven cash flow. This would produce a return on investment of 31% ($70,500/$229,125 = 31%). This is still a phenomenal return.
Assessing the Risks
What are the possible headwinds/risks to the above scenarios? The major risk is that approximately 60% of Canadian mortgages are set to renew between 2024 and 2026. For the average borrower, their mortgage payments will increase by 30% due to increased interest rates compared to five years ago. This could cause an increase in homeowners selling due to affordability issues. So while this could reduce the rate at which prices increase it would also increase the number of renters putting greater demand on rental properties and increasing rental prices. Given the strength of Alberta's economy right now, this seems like a low probability. An additional risk includes demands for rent control in Alberta. Given the current provincial government’s ideology, again, I don’t see this as a likely event.
Make 2024 the year you grow your real estate empire!
Connect with Power Properties to speak with a licensed Realtor and Property Manager, not only will they help you find the ideal investment property for your needs, but they will also manage it for you! As an additional perk, if you purchase an investment through Power Properties and then sign up for management services, we will waive your first leasing fee!
Finally, I will leave you with my favourite real estate quote: “When is the best time to buy real estate? Today, and five years ago!”
Connect with Power Properties:
Written by Jamie Palmer, President/Broker of Power Properties Ltd.
Jamie Palmer is the President and Broker of Power Properties. He holds a Certified Property Manager (CPM®) designation, the highest designation in Property Management in North America. He earned an Honors degree from the University of Toronto, and he has over two decades of experience in property management.
About Power Properties Ltd.
Founded in 1980, Power Properties has been providing hassle-free property management services to property owners, property investors and non-residents with homes in Calgary, Alberta for over 40 years. Our full-service property management includes everything from move in to move out, so you don’t have to worry about the day-to-day operations of your rental property. With a team of licensed professionals, years of experience, and award-winning service, you can rest assured that your property is in good hands.
